For most college graduates, earning a degree comes at a high price. The average cost of attending a public, four-year college for the 2013-14 school year was about $18,391 ($31,701 if you attend an out-of-state school), according to the College Board. Now that most college students have graduated comes the hard part: finding a job and paying down those pesky student loans.

The class of 2014 graduated as the most indebted class in history. The average graduate with student loan debt has to pay back about $33,000 in loans. Altogether, Americans have racked up more than $1.2 trillion in federal student debt. If you’re one of those graduates who has lot of student loans to pay off, hopefully you’ve been able to find a job and settle into the “real world” because Sallie Mae will soon come knocking on your door asking for loan payments.

For many college graduates, the question of how to handle paying off those students loans may loom in the back of your mind. Should you defer payments? What if you can’t afford to pay off the loans right away? And should you go with the lowest minimum monthly student loan payment option?

The loan repayment process can be confusing, but the last thing you want to do is pursue a plan that you will regret later on — especially because it’s likely that you’ll be making payments on your debt for many years to come.

One scenario many new graduates might face is having to decide whether to take longer to pay off their student debt with a lower monthly minimum payment or to pay more over a shorter period of time. For instance, you could sign up for a 10-year repayment plan and have a minimum monthly payment of about $725 on your student loans. Or you could choose the 25-year repayment option, which means your monthly minimum payments would be lower, say about $625, but take longer to pay off. Which option should you choose? It really depends on your own personal circumstances. But before you make a decision, lower student loan payments or a shorter pay period, it might help you to learn more about the repayment process.

Why does the repayment process take so long?

Most students won’t be able to pay off those big student loans so quickly — otherwise they would do so. The time it takes to pay off the total balance of your loans might be affected by some of the options you choose to pursue. Do you plan to participate in federal repayment plans like Pay As You Earn, Income Based Repayment, Income Sensitive Repayment or Income Contingent Repayment? These income-driven repayment plans are intended to make your debt more manageable by reducing your monthly payments. Of course, that means you will be paying off those student loans for much longer than if you opted for a standard repayment plan.

In addition to repaying the loans over a longer period of time, it’s likely that you’ll be paying more, too. Since you’re extending your repayment period, you’ll be accruing more interest over a longer period of time. Keep that in mind when you have to make a decision about how to repay your loans. That said, these income-driven repayment plans are offered for a reason and you should seriously consider them. If the total amount of debt you’ve accumulated from your federal student loans is higher than your annual income or represents a significant chunk of your annual income, you might consider an income-driven plan.

Another reason why your repayment plan might take longer than expected is if you choose to consolidate your loans. It’s likely that you reapplied for new loans each year you were in school, which means that you’ve ended up with at least four different student loans. You can consolidate one or more of your loans to simplify your payments into one monthly bill. Doing so will not only lower your monthly payments, but also extend the length of time you have to repay the loan from, say, 10 years to 30. Of course, that means you will be paying more in interest. You might also lose out on some borrower benefits that might have been offered with the original loans. These benefits might include interest rate discounts, principal rebates, or loan cancellation benefits. Weigh your options carefully before deciding to lower your monthly minimum or consolidate your loans because you might be paying off your student debt for decades.

Should I not lower my minimum monthly payment?

Again, it depends on your personal circumstances. In general, you should take advantage of lowering your monthly minimum payments — unless doing so means you will get penalized or cause your interest to increase. Why? For starters, having a lower monthly minimum payment will help you save more for major expenses or emergencies. So put those plans to take a trip to the Bahamas on hold because a lower monthly payment is not an automatic invitation to go on a spending spree. Sorry. Another reason to lower your monthly minimum payment? It will lower your total obligatory debt, which might help if you’re looking to buy a house or car. And lastly, a lower monthly minimum payment on your student debt means you can allocate more money to getting rid of your highest interest loan more quickly.

What do I do with the extra money?

Read this carefully: Don’t pay less on your loans just because your minimum amount due is lowered. Even if you are able to take advantage of a lower monthly minimum payment, you should absolutely pay the loan’s original minimum amount so that you aren’t stuck paying tons of interest.

You don’t want to get stuck paying interest for your loans over the course of 30-plus years if you can help it. So contribute additional payments to your highest interest loans. Watch out for tricky lenders who might misapply your additional payments, though. Some lenders might apply the additional payments across all your loans, others might prorate them. You need to be completely clear with your loan servicer that you want your extra payments to go towards your highest interest loan.

What other options do I have?

If you face difficulty paying off your student loans, there are options. You can try talking with someone from your loan servicer to establish a modified repayment schedule. Under certain circumstance you might be able to receive a deferment or forbearance, which will allow you to temporarily postpone or reduce your loan payments. A deferment will delay payments on your loan for a temporary period of time. You can get a forbearance if you don’t qualify for a deferment, but can’t make your scheduled loan payments. A forbearance will allow you to stop making payments or reduce your monthly payments for up to a year, though interest will continue to accrue on the loan. You’ll have to work with your loan servicer to take advantage of either option.

You might also look into participating in a loan forgiveness program. These programs — which can be broadly divided into community service, military, profession, and state-specific — reward you for something you do, like giving to the community in a specific way. After participating in one of these programs, some of your student debt will be forgiven.

Another option you might consider is getting debt management help. There are some debt management services that focus on students that can help you come up with a plan to pay off your loans.

However you choose to handle repayment of your student loans, the important thing to do is act aggressively to pay them off. Your student debt may seem overwhelming at first, but with a strong plan of action, your loans will shrink over time.

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Ryan L

Nice article on student loans! When I claimed loan interest on my last tax return, I was appalled seeing that I spent over $4,000 in interest alone for a single year! My second biggest regret after taking loans out in the first place was not being more aggressive paying them off at the very beginning. I would literally have thousands more in my pocket today. For current holders out there, get those 6%+ loans paid off ASAP followed by anything above 4% and so on.

highinterest

Theoretically, taking the lower monthly payment and paying a higher amount makes the most sense.

However, let’s be realistic here. Especially for today’s “got it now, spend it on toys and partying now” recent grads (who are little different from the recent grads of other generations), the minimum effectively becomes the maximum. Few recent grads are going to set up a $500/month payment and then pay $650 when they can spend that $150 on drinks, restaurants, Starbucks, cars, vacations, their electronic substitutes for Mommy’s nipple, etc.

Better to set up a slightly higher minimum payment and stick to it because you have to do it.

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